Eyeing untapped market, e-commerce giants focus on rural logistics

By Zhang Ye in Hangzhou Source:Global Times Published: 2016/6/14 20:38:01

Consumers in China's countryside are growing increasingly familiar with online shopping, thanks to an aggressive push by domestic e-commerce companies. Now those companies are beefing up efforts to improve rural logistics. It's a move analysts said will further facilitate links between cities and villages. But it is also transforming the rural retail landscape.


A Cuntao partner (far left) teaches residents of a village in Huaibei, East China's Anhui Province, how to shop online in April. Cuntao, the service centers that Alibaba Group Holding has set up in villages around China, is at the heart of the e-commerce giant's strategy to stimulate consumption in the countryside. Photo: IC

Villager Zhang Fulai used to have to drive 30 minutes to a nearby township to pick up his online purchases.

Last year, however, Zhang got the water heater and television that he purchased during the online shopping festival on "Double 11" delivered right to his doorstep in Datun, a village in North China's Hebei Province.

"It feels good to finally get some city conveniences, thanks to Cuntao," the 30-year-old villager told the Global Times on Monday.

Cuntao, which means rural Taobao, refers to the service centers that Alibaba Group Holding has set up in villages around China, primarily at convenience stores. The centers are at the heart of the e-commerce giant's strategy to stimulate consumption in the countryside.

Alibaba started opening the centers in 2014 to ensure delivery of goods rural residents have ordered on its e-commerce sites, including Taobao. The centers also serve as places to teach villagers the ins and outs of shopping online, which many rural residents remain unfamiliar with.

The company's efforts to extend its reach into China's countryside make sense, considering the size of the rural market.

Rural Chinese consumers will buy an estimated 460 billion yuan ($69.78 billion) worth of goods online this year, up from 180 billion yuan in 2014, according to the Ali Research Institute, Alibaba's research division.

E-commerce companies have already made it easier for China's rural residents to get their online purchases. Now they are trying not only to reach more remote consumers, but also to make the process easier and more cost effective. 

The long, last mile

China's express delivery companies, most of which are privately owned, handle much of the country's e-commerce deliveries. However, China's express delivery network only covered about 48 percent of the country's villages and towns in 2015, according to a report by the Beijing-based Qianzhan Industry Research Center in May.

"The biggest barrier to improving rural logistics is the last mile problem, because many delivery companies do not reach remote rural regions due to cost concerns," said a PR representative with JD.com Inc, China's second-largest online retailer.

Unlike China's cities, whose dense population makes delivering packages far more cost effective, delivery companies have to spend a lot more time and effort to serve rural areas, the PR representative told the Global Times on Sunday.

The State Post Bureau, which oversees the express delivery industry, has pledged to increase the coverage area to 80 percent of domestic towns and villages by the end of 2016, according to a statement on its website.

The industry wants to go further, said Shen Jianfeng, director of the rural business group of the Cainiao Network, a logistics alliance initiated by Alibaba and major domestic express delivery firms.

"We will continue working to meet the authorities' goals, but the [80 percent] figure is not our ultimate goal. We want to make the delivery service more cost effective and comprehensive, able to handle various high-quality products like fresh food and home appliances," Shen told the Global Times Monday on the sidelines of the 2016 Global Smart Logistics Summit held in Hangzhou, capital of East China's Zhejiang Province. Alibaba is headquartered in Hangzhou.

Cainiao aims to fulfill its goal via Alibaba's rural service centers, which now serve 150 million residents from 17,000 villages in China.

In March, 99 percent of Cainiao parcels were delivered to rural areas within two days of the order being placed, up from about 45 percent in October 2015, according to a report by the Ali Research Institute in May.

For its part, JD is testing out drones to solve the last mile problem, but it has not given a timetable for when it might start using them for deliveries.

Shifting landscape

There are signs that the efforts to beef up rural logistics have already had an effect on rural retailing.

Well-established brands used to rely on multiple layers of distributors to reach rural consumers, so it was hard to get high-quality goods to the countryside at a low cost, said Chen Jie, director of the rural e-commerce sales channel at Taiwan-headquartered food conglomerate Uni-President Enterprises Corp.

"Now we can directly receive orders from rural consumers via online bazaars run by companies like Alibaba, and have the nearest distribution center take the parcels to rural logistics centers set up by e-commerce firms in the counties and villages," Chen said at a press conference in April.

"This new way of sales and delivery helps us tap more of the rural market," he noted.

Chen cited iced tea as an example.

Using traditional sales channels, it costs about 14 yuan to deliver a 7.5-kilogram case of the beverage to rural areas. That's almost one-third of the product's retail price. Using Cuntao, however, the shipping cost falls to less than 3 yuan.

While e-commerce helps manufacturers cut costs, it is also squeezing local rural retailers.

"I plan to close my store this year. It is tough to do business when confronted with e-commerce," said Zhao Yuying, a 40-year-old woman who sells socks and underwear in Datun.

If local residents can get the same products at a lower price online, "why would they choose us?" she told the Global Times on Monday.

Still, the government is encouraging e-commerce and logistics to expand into the countryside to create more jobs and give rural residents access to more goods at lower prices.

"A well-established logistics network can help sell rural products at better prices … and bring transformative changes to the countryside," said Xiong Jian, general manager of Cainiao's rural business group.

Another major change is that fewer rural residents will leave their hometowns to seek opportunities in the urban areas, Xiong said at a press conference at the summit on Monday.

He believes the trend will continue.

Many rural people have already returned to their remote hometowns to set up local businesses, Ali Research director Gao Hongbing said in his keynote speech at the summit.

In the speech, he mentioned a town in Suining county in Xuzhou, East China's Jiangsu Province. Seven years ago, the town was stricken with poverty. But by 2015, it had cultivated more than 4,000 retailers who sold 8.5 billion yuan furniture via Taobao. 

Nonetheless, Alibaba and JD still have much to do to make e-commerce more accessible to all of rural China.

Currently, Cainiao covers only 430 of 2,800 counties in China, Xiong said. There are about 600 million people living in rural China - about as many as live in Europe - who, unlike the villager Zhang, cannot enjoy the convenience of e-commerce.
Newspaper headline: Connecting the countryside

Posted in: Insight

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